With their much sought-after ocean views, wealthy Hong Kongers have been ready to pay almost any price for so-called trophy houses on the Peak and along Repulse Bay Road.

In the past year, a number of luxury properties have sold for hundreds of millions of dollars each, making them the most expensive houses in the world.

In May, New World Development bought the Hotung family mansion on the Peak for $728.88 million, or almost $21,000 per square foot.

Six months earlier, Pearl Oriental Holdings chairman Wong Kwan stunned the market and grabbed international headlines when he bought two properties for a total of about $1 billion in the space of a few weeks.

In November, the company bought Skyhigh in Pollock's Path for $375 million, or $19,000 per sq ft.

That was quickly followed by the purchase of Genesis, a 28,000 sq ft property in Severn Road, for $540 million, or $19,285 per sq ft.

According to agents, the scarcity of luxurious, free-standing homes in Hong Kong, combined with increasing demand from local residents and mainland arrivals, would ensure prices continued to climb in the near future. Most believed increased luxury residential prices were here to stay, as long as the stock and property markets did not go into a tailspin and the economy did not hit a downturn as it did in 1995.

Agents and property analysts said the multi-million dollar prices potential purchasers were prepared to pay was a fairly new phenomenon.

Before the Joint Declaration was signed in 1984, luxury residential properties were either owned by wealthy corporations or by families content to keep properties in their investment portfolios.

But that changed as the handover approached, prompting some Peak residents to sell.

'A lot of people were scared of Red China and they wanted to get out before China came in,' one agent said.

'That is why the prestigeous properties began changing hands.' According to agents, many wealthy property owners also began trading their properties when they found just how valuable they were.

In many instances, owners put their properties on the market simply because they were offered so much for them.

The market was given a further boost in 1993 and 1994, thanks to mainland money pouring into Hong Kong.

'Many listed companies invested in the stock market and the property market instead of putting shareholders' money into the company,' one agent said.

As a result, buyers were now paying prices which were unthinkable 10 years ago, he said.

The house purchased by Mr Wong for $360 million in 1996 was originally sold by the builders for $85 million in the mid-1980s.

Other mega-deals completed within the past year include the sale of the German Consulate's residence in Gough Hill Road to Richard Li Tzar-kai for $280 million.

The 9,100 sq ft residence of Sir Kenneth Fung Ping-fan sold for $230 million this year.

According to many agents, the single biggest factor pushing prices up was the redevelopment potential of the sites.

Luxury homes on the Peak may be grand, but to modern developers they represent a very inefficient use of space.

As a result, homes bought there for massive prices are usually torn down and redeveloped into less grand townhouses.

The result is a tidy profit for the developer.

The Hotung mansion in Black's Link Road, for instance, is relatively small at about12,000 sq ft, but including its extensive garden, the actual site measures 69,535 sq ft.

With a plot ratio of 0.5, the developer could build about 35,000 sq ft of luxury accommodation, which at today's prices would net a handsome profit.

After paying about $19,000 per sq ft for the site, the developer could expect to sell the new space for at least $25,000 per sq ft, according to analysts.

The same goes for many of the other big deals on the Peak.

Pearl Oriental Holdings announced a few months ago it had pre-sold all five luxury townhouses which it intended to build on the site of Skyhigh for a total $918 million - a profit of $468 million.

Equally mind-boggling was the fact that Mr Wong turned down a $900 million offer for Genesis.

He paid $540 million for the property, which he said was now worth $1.1 billion.